UK economy fell in April amid red-hot inflation

The British inflation shrank in April, with output declining across all major sectors, consolidating worries of a possible recession.

The UK gross domestic product skidded 0.30% month-over-month in April, missing the analysts’ estimate of a 1.00% upturn. In addition, the latest figure trailed the 0.10% contraction in March, marking the first back-to-back decline since 2020.

Services posted the primary downward trend, dropping 0.30% in the period. Subsequently, it reflected a 5.60% decrease in human health and social work.

Likewise, the UK’s production sector decreased by 0.60%  as firms still bear the impact of price increases and supply chain shortages. At the same time, the construction also inched down 0.40%.

Correspondingly, this is the first time since 2021 that all main economic sectors have shrunk.

Moreover, the annual GDP lowered to 3.40%, well below the market estimate of 3.90%. Then, it sharply eased from the previous expansion of 6.40%. On a quarterly basis, the figure dropped to 0.20% from the prior 0.80%. Consequently, it came in lower than the forecasted 0.40% rise.

In line with this, the UK economic figure was now 0.90% above its pre-coronavirus level in February 2020.

Nevertheless, economists anticipated the growth to rebound in the third quarter. Thus, the chances of a second successive quarterly decline in GDP remained low.

BOE to raise interest rates despite UK’s GDP drop

Despite the slowdown in economic growth, the Bank of England will likely hike interest rates for the fifth time since December.

The UK central bank anticipated the inflation to exceed 10.00% in the final quarter of the year. Accordingly, this projection came in five times higher than its target.

Then, market participants projected another quarter-percentage-point rate increase this week. This prospect will take the Bank Rate to 1.25%, marking the highest level since 2009.

Therefore, the Confederation of British Industry warned of risks of stagnation and possibly a recession.

Meanwhile, economists cited several positive data from the latest UK economic report. The consumer-facing services posted a gain of 2.60% increase as the retail sector climbed by 1.40%.